Here's Why We Don't Think Hindustan Media Ventures's (NSE:HMVL) Statutory Earnings Reflect Its Underlying Earnings Potential

As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we'll look at how useful this year's statutory profit is, when analysing Hindustan Media Ventures (NSE:HMVL).

We like the fact that Hindustan Media Ventures made a profit of ₹720.9m on its revenue of ₹6.06b, in the last year. Below, you can see that both its revenue and its profit have fallen over the last three years.

See our latest analysis for Hindustan Media Ventures

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Hindustan Media Ventures' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hindustan Media Ventures.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hindustan Media Ventures' profit received a boost of ₹877m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Hindustan Media Ventures had a rather significant contribution from unusual items relative to its profit to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Hindustan Media Ventures' Profit Performance

As we discussed above, we think the significant positive unusual item makes Hindustan Media Ventures'earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Hindustan Media Ventures' underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Hindustan Media Ventures at this point in time. For example, we've found that Hindustan Media Ventures has 3 warning signs (1 is significant!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Hindustan Media Ventures' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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